Crowdfunding Nation: The Rise and Evolution of Collaborative Funding

When Kickstarter was launched in 2009, it seemed like a unlikely proposition: fund your passion projects with money donated by eager supporters? Get strangers to fund your dreams with only an idea and a good pitch? While there were precedents, such as the microfinance service Kiva, Kickstarter projects thrived on the goodwill of the crowd while the world economy was in the midst of the global recession. Yancey Strickler, one of Kickstarter’s founders, had his own reservations before starting the company, noting in a New York Times interview that his initial response to co-founder Perry Chen was, “I’m not so sure about this...If you let people vote for what they want — that’s ‘American Idol,’ that doesn’t produce great art.”

Yet in the past two years, crowdfunding has exploded, thanks in part to the Kickstarter’s “all-or-nothing” model for funding. It’s democracy in action: think you have a great idea? Convince enough people and you can make it a reality. If not, back to the drawing board. By turning collaborative funding into a high-stakes game, Kickstarter demands a certain level of quality from its creators, encourages that they work to promote it, and gives backers confidence that they’ll only pay for projects that achieve a critical mass of support. Even as alternative services continue to launch, serving different types of projects and audiences, many follow the model popularized by Kickstarter.

The momentum shows no signs of letting up. Yesterday, Kickstarter announced that they hit their one millionth backer, with adoption increasing exponentially: on their blog, Kickstarter notes that it took 16 months to reach the first 200,000 backers, while the last 200,000 signed on in only three months. Funding projects is habitual, according to Kickstarter’s figures. Out of 1,013,725 total backers, 166,823 have funded two or more projects, 66,676 have backed three or more, and 23,601 have backed five or more. This phenomenon echoes Shareable’s view that sharing is contagious, and one shareable act begets more.

In July, upon reaching 10,000 successfully funded projects, Kickstarter released metrics that revealed a 44% success rate among projects, and a rapid increase in the number of successful projects month-by-month.

Breaking down successful projects by category, Kickstarter revealed some useful insights on what types of projects get the most traction on their creative-oriented platform. Music, film and video are the clear frontrunners:

With such growth, critiques are inevitable. Perhaps most common is the fear that we’re in a crowdfunding “bubble”. In a blog post, designer Andy Mangold presented some well-directed critiques before he launched a Kickstarter project, noting that selling an idea is much easier than selling an actual product, that these platforms prefer those with large established networks, and that the lack of insurance for backers could lead to backlash if the creators don’t deliver what was promised.

Consider the hype and backlash cycle endured by the people behind Diaspora, one of the most high-profile crowdfunded projects to date. The enthusiasm that greeted Diaspora’s plan to build an open-source alternative to Facebook quickly curdled among some supporters and journalists who felt that the development process took too long and were disappointed by the limited alpha release. While gathering funding from your networks and supporters can make otherwise impossible projects possible, creators may then face expectations they can’t meet. In a media climate where everyone has a voice on blogs and social media, excitement can turn to anger when money has been offered up front.

The tech industry's backlash to Diaspora was quick and harsh. Via Download Squad.

That said, crowdfunding’s momentum shows no signs of flagging. There's no doubt that as adoption increases, so does competition, making it more crucial than ever to stand out from the crowd. Before starting a campaign, do your research, and be prepared to work hard. There are many how-to guides, including Shareable’s guides on how to run your own campaign and what you’ll need to start. Metafliter founder and serial backer Matt Haughey offers a useful list of suggestions from the perspective of a funder, and the Modest Guide to Success on Kickstarter offers particularly useful advices. Common among the various how-to posts are that you must define success beforehand, communicate with backers transparently, and carefully structure the reward system to succeed. In addition, Kickstarter’s online school of how-tos and FAQS is a must-read no matter what service you choose to use.

Look at the profit/loss statements released by those who have successfully funded similar projects — Diaspora released a detailed statement after their campaign, breaking down Kickstarter’s fees and promotional costs, and many have released similar statements, such as the documentary filmmaker Joey Daoud. Be realistic, and make sure you’re setting the goal at something achievable — if you can’t hit that total, you’ll be walking away with nothing but squandered good will.

One of the most high-profile Kickstarter projects to date, TikTok is a watch strap for the iPod Nano that was highlighted in the latest Apple keynote.

Living in an era of unprecedented connectivity, crowdfunding represents a new way for creators, makers, entrepreneurs and social activists to realize their dreams. Moreover, the collaboration enabled by peer-to-peer social lending and funding platforms represents a unique opportunity presented by The New Sharing Economy.

Will the bubble burst? It’s too early to say, but the numbers show that the trajectory remains on a steadily upward path. No matter its future, Crowdfunding represents a collaboration and funding opportunity that would have been unthinkable only a decade ago, with a transformative impact on creators, makers, entrepreneurs, and social movements that cannot be understated.